Liquidity risk controls are measures implemented by financial institutions to manage the potential inability to meet short-term financial obligations. These controls include maintaining sufficient cash reserves and access to funding sources. Their purpose is to ensure an entity can readily convert assets into cash without substantial loss. Robust controls are vital for financial stability.
Context
For banks dealing with digital assets, liquidity risk controls are paramount due to crypto’s price volatility and market depth variations. Regulators require institutions to assess and mitigate the risk of sudden crypto asset value declines or inability to sell holdings quickly. Effective controls are necessary to prevent adverse impacts on bank solvency.
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